Wheels: Would-Be Carmakers Tap the Wisdom, and Dollars, of Crowds

Wheels: Would-Be Carmakers Tap the Wisdom, and Dollars, of Crowds

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“The wisdom of the crowd determines the viability of these companies,” said Ron Miller, chief executive of StartEngine in Santa Monica, Calif. His company provides marketing and financial services to start-ups that are raising money through crowdfunding.

“A large number of unsophisticated people,” he said, “are likely to be more accurate than a handful of sophisticated people.”

StartEngine’s clients include Storm Sondors, who now makes electric bicycles but is raising money for the three-wheeled car he intends to sell for $10,000. As of Tuesday the Sondors Electric Car Company had raised $897,900 from 1,368 investors.

Mr. Sondors aims to raise $1 million to create prototypes, although he expects to need $12 million to start production in two years, if all goes according to plan.

“Whatever I create is bold but proven technology,” Mr. Sondors said, citing his experience in electric bikes, of which he has sold more than 15,000 for $500 or more each.

“I want to figure out how to make an electric car cost-efficiently,” he said. One way to do that is to use three wheels rather than four.

Ronn Ford, who wants to build an electric sports car, with a prototype at his corporate offices in Scottsdale, Ariz. He expects to sell his 350-mile-range car for $140,000.

Credit
C.G. Ryche

The government currently classifies a vehicle with three wheels as a motorcycle. Consequently those manufacturers do not have to meet federal regulations that pertain to safety and crash protection for cars.

But it is yet another set of federal rules that makes it possible for start-ups like Sondors Electric Car to raise financing.

Under securities rules sometimes referred to Regulation A-Plus, which took effect late last year, small companies are allowed to raise up to $50 million each year through stock or debt. Much of it can come from individuals who are not “qualified” — that is, from people making less than $200,000 per year, or having net assets below $1 million.

To prevent swindlers from trying to shake down naïve investors, the Securities and Exchange Commission bars certain “bad actors” from being on a company’s management team. That includes those with certain criminal convictions, or those who have engaged in fraudulent activities or are subject to cease-and-desist orders.

Even so, an unsophisticated investor who does not know how to evaluate a start-up could easily wind up losing substantial sums of money.

Darren Marble, chief executive of CrowdfundX, which handles marketing and advertising for crowdfunding efforts, recommends that a nonqualified individual never invest more than 5 percent of his or her investable assets in Regulation A-Plus deals.

“And diversify,’’ Mr. Marble advised. “Invest that 5 percent over 10 or 20 companies.”

The aspiring carmakers who have resorted to crowdfunding invariably think they see an angle that the mainstream automakers have either missed or are too big and bureaucratic to pursue.

So far, the most successful start-up of the group — at least in money-raising prowess — is Elio Motors, which has no product yet but has attracted $17 million from 6,300 people.

“Crowdfunding is all about storytelling,” said Mr. Marble, who conducted Elio Motors’ effort. “You need to tell a story that emotionally inspires people. Financial return is secondary to this for investors.”

The storyteller in Elio Motors’ case is Paul Elio, the founder. He, like Mr. Sondors, spins a vision of a three-wheeler. But in Elio Motors’ tale, it will be a gasoline-powered vehicle that gets 84 miles per gallon, with a $7,300 starting price, to be built in a former General Motors plant in Shreveport, La.

To date, 63,000 buyers have reserved an Elio, depositing up to $1,000 to secure a place in line. At least some of the deposits are nonrefundable.

A prototype of a Ronn Ford car, the Scorpion.

Credit
C.G. Ryche

Crowdfunding may have put Elio Motors on the map, but Mr. Elio acknowledges that he still needs considerably more funding to make his project a reality. He has had to postpone the debut several times, and now expects to begin selling his car in late 2017 or early 2018.

To date, he has raised $100 million through various sources, and says he needs $300 million for the venture to be self-sustaining. If he can pull it off, that would be much less than the billions it typically takes a major automaker to create a car.

He plans to use the former G.M. plant’s assembly equipment and components from outside suppliers. Using someone else’s steering wheel, he said, cut out $1 million in testing costs.

“Most of our vehicle content is out of something else,” said Mr. Elio, a mechanical engineer who formerly worked for Johnson Controls, a big maker of automotive parts.

For Mr. Elio and others, crowdfunding is not meant to be the sole source of capital. Rather, by raising capital through many less-wealthy people, companies hope to pique the interest of larger investors who otherwise would not give them the time of day.

“When they don’t see a revenue stream, their heads pop off,” Mr. Elio said. “Venture capitalists say, ‘Hey, it’s great, but I only do biotech.’ No venture capitalists specialize in car companies. But the public just sees a good company.”

One company that already sells a car is looking to crowdfunding for additional capital.

Campagna Motors, based in Montreal, has sold 1,000 of its high-end, futuristic, three-wheeled, gasoline-powered T-Rex and V13R vehicles in the United States using a small, six-dealer network.

Now Campagna wants to expand, aiming to increase its sales and service network tenfold. The company also wants to develop a new vehicle that would sell in the $30,000 range, compared to current prices that start at $54,000.

So far, Campagna has raised $26,500 from 67 investors. The company wants to raise at least $100,000.

“We looked at traditional venture capital funding, but manufacturing in North America is not sexy to this group,” said André Morissette, Campagna Motors’ president. “We now have investors who have tattoos.”

Many of the start-ups are aiming for niche markets with small, offbeat cars meant to attract people who are open to experimentation or aren’t interested in conventional automobiles. Ronn Ford, though, aims to build a better sports car. An electric one.

Mr. Ford, no relation to the automotive family of the same name, has spent his professional life restoring high-end vehicles. He expects to sell his 350-mile-range electric sports car for $140,000.

He has just begun crowdfunding efforts for his company, Ronn Motor Group, in Scottsdale, Ariz.

“I’m not a wallowing behemoth with a giant bureaucracy,” Mr. Ford said. “You can do all your crash testing via computer. We’ll buy off-the-shelf componentry to be more efficient. We can buy aftermarket bodies and do 3-D printing for prototypes. It’s just not that difficult.”

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